Formulae List

• What is the formula for total costs?

  Total costs = Fixed costs + Variable costs
• How is profit calculated?

  Profit = Total revenue - Total costs
• What is the formula for total variable costs?

  Total variable costs = Variable cost per unit × Number of units sold
• How is sales revenue calculated?

  Sales revenue = Selling price per unit × Number of units sold
• What is market capitalisation of a business?

  Market capitalisation = Number of issued shares × Current share price
• How is expected value calculated for a decision with two outcomes?

  Expected value = (Pay-off of A × probability of A) + (Pay-off of B × probability of B)
• What is the relationship between the probabilities of outcomes A and B?

  Probability of A + Probability of B = 1.0
• How is net gain calculated in a decision tree?

  Net gain = Expected value - Initial cost of decision
• What is market size volume?

  Market size volume is the quantity of goods produced in a market
• What is market size (value)?

  Market size (value) is total sales revenue generated
• What is sales volume?

  Sales volume is the quantity produced by a business
• How is added value calculated?

  Added value = Sales revenue - Costs of bought-in goods
• What is sales value?

  Sales value is total sales revenue over a period
• How is market growth (%) calculated?

  Market growth (%) = Change in market size / Size of market in previous year × 100
• What is price elasticity of demand?

  Price elasticity of demand measures responsiveness to price changes
• What does a price inelastic demand coefficient indicate?

  Price inelastic demand has a coefficient from 0 to -1
• What does a price elastic demand coefficient indicate?

  Price elastic demand has a coefficient from -1 to -∞
• How is sales growth (%) calculated?

  Sales growth (%) = Change in sales / Sales in previous year × 100
• What is labour productivity?

  Labour productivity = Output per time period / Number of employees
• How is return on investment (%) calculated?

  Return on investment (%) = Return from investment / Cost of investment × 100
• What is gross profit?

  Gross Profit = Sales Revenue - Cost of Sales
• How is profit from operations calculated?

  Profit from Operations = Sales Revenue - Cost of Sales - Operating Expenses
• How is profit for the year calculated?

  Profit for year = Operating profit + Profit from other activities - Net finance costs - Tax
• What is variance in business terms?

  Variance is the difference between actual and budgeted figures
• What is a favourable variance?

  Favourable variance results in profits higher than forecast
• What is an adverse variance?

  Adverse variance results in profits lower than forecast
• How is contribution per unit calculated?

  Contribution per unit = Selling price - Variable costs per unit
• How is total contribution calculated?

  Total contribution = Contribution per unit × Units produced or sold
• What does the break-even output represent?

  Break-even output is where Total Revenue equals Total Costs
• How is the level of profit determined on a break-even chart?

  Level of profit is the vertical distance between Total Revenue and Total Cost lines
• What is the margin of safety?

  Margin of safety = Actual level of output - Breakeven level of output
• What is gross profit margin (%)?

  Gross profit margin (%) = Gross profit / Sales revenue × 100
• What is profit from operations margin (%)?

  Profit from operations margin (%) = Operating profit / Sales revenue × 100
• What is profit for year margin (%)?

  Profit for year margin (%) = Profit for year / Sales revenue × 100
• How is labour turnover (%) calculated?

  Labour turnover (%) = Number of staff leaving / Average number of staff employed × 100
• What is employee retention rate (%)?

  Employee retention rate (%) = Number of staff remaining / Average number of staff employed × 100
• What is break-even output?

  Break-even output = Fixed costs / Contribution per unit
• How is return on capital employed (ROCE) (%) calculated?

  ROCE (%) = Operating profit / Capital employed × 100
• What is gearing (%)?

  Gearing (%) = Non-current liabilities / Capital employed × 100
• What are payables days?

  Payables days = Payables / Cost of sales × 365